CCB Chairman: Lenders Could See More Bad Loans
By LINGLING WEI
BEIJING—Chinese lenders face the potential for more bad loans as the country’s economic growth slows, the chairman of China Construction Bank Corp. warned Thursday, and he also urged commercial banks to move faster to increase lending to small businesses.
“Systemic risks are rising in certain industries, regions and borrower groups” that are vulnerable to weakening foreign demand and a slowdown in domestic economic growth, Wang Hongzhang said in a written response to questions from The Wall Street Journal. He listed property, solar panel, steel and export sectors as particularly risky.
CCB, China’s second-largest lender by assets, has done “an adequate evaluation of the seriousness of the current situation,” Mr. Wang said, pointing to the bank’s improved risk-management practices and increased provisions against bad loans. “Asset quality will remain healthy,” he said.
The remarks come as global investors have grown increasingly concerned over loan quality in China’s vast banking system amid a slowdown in China’s growth from the previous pace. Shares in China’s big four banks—which include CCB, Bank of ChinaLtd, Agricultural Bank of China Ltd and Industrial & Commercial Bank of China Ltd., China’s No. 1 bank by assets—have underperformed China’s broader market this year, with some analysts predicting more pain to come.
Chinese banking officials have repeatedly sought to reassure investors that the country’s banks won’t suffer the kind of banking crises seen in the U.S. and Europe, despite the surge in bank lending in the past few years aimed at propping up the economy.
“The risks are within control,” Shang Fulin, China’s top banking regulator, told reporters Sunday on the sidelines of this week’s 18th Communist Party Congress, which selected a new group of leaders for the world’s No. 2 economy.
Mr. Wang, a delegate to the Party Congress, said Chinese banks need to change their lending models as China moves toward a market-based interest-rate system as part of its plan to transform its economy from one that relied on bank-fueled investments to one that will be more reliant on consumption.
Currently, China’s central bank sets a floor on lending rates and a ceiling on deposit rates, allowing banks to live off a guaranteed spread between the two. Critics say the interest-rate controls shield banks from pressure to compete for business, hurting smaller borrowers while enriching big state-owned companies, and that the controls penalize the depositors Beijing hopes will become more active consumers. China’s big four banks reported a combined third-quarter profit of about $30 billion, almost triple the amount made by the top four U.S. banks.
A shift away from those controls poses challenges to commercial banks, Mr. Wang said, as that would hurt banks’ lending margins. Banks need to “accelerate the adjustment of their lending” to be friendlier to small and private businesses, he said.
Still, the stakes are high. Economists sometimes trace financial crises in countries—including the U.S. savings-and-loan collapse in the 1980s—to mishandled interest-rate liberalization. Allowing banks the discretion to decide for themselves how much to pay for deposits can set off frenzied competition to attract savers, which can cause lending standards to be weakened as banks’ costs rise and they feel pressure to lend out the new deposits.
CCB will “control the pace of growth in high-cost deposits,” Mr. Wang said.
15 November 2012, Wall Street Journal